The advantages of a higher technical interest rate.

Profond’s vision is to be the most attractive independent pension fund by 2026 by sustainably providing a high level of benefits for our insured. A technical interest rate in excess of the market average is one piece of this jigsaw puzzle, as it forms the basis for higher pensions and lower risk premiums. For this reason, we are working towards keeping the technical interest rate as high as possible or not lowering it as far as some of our competitors.

The technical interest rate is used to value future benefits and is an important parameter for a pension fund. It depends on the expected income from assets and the structure of the pension fund. Since the foundation of Profond in 1991, our investment strategy has allowed us to generate an average annual return of 5.4 per cent and credit our insured an average interest rate of 4 per cent. We work on the assumption that we will continue to achieve a similar performance over the long term. For this reason, we are able to apply a higher technical interest rate than the market. 

At the recommendation of the pension fund expert, the Profond Foundation Board makes an annual decision on the technical interest rate. At Profond, it currently stands at 2%, making it higher than the average in Switzerland. 

There are good reasons for setting a higher technical interest rate:

• It has no negative impact on our financial stability, as long as our return is, on average, higher than the technical interest rate.
• Our conversion rate can remain above average, as our investment strategy makes it possible to continue to expect a return that is, on average, significantly higher than the technical interest rate.
• The redistribution from actively contributing members to pensioners is not increasing, because the actuarial pension reserves do not have to be increased. Ultimately, this means a potentially higher interest rate on retirement assets.
• If the conversion interest rate (for the accounting of the pension obligations) and the actuarial interest rate (the technical interest rate included in the conversion rate for the calculation of the retirement pension) converge, the resulting conversion rate loss falls.
• Thanks to rising interest rates, any lowering of the technical interest rate will soon be “running against the grain”. For this reason, it is likely that the regulatory requirements will be adjusted to the new situation in the near future (an increase in the upper limit according to Professional Guidelines 4 [FRP 4]). Lowering the technical interest rate “as a precaution” has no place in Profond’s philosophy.

Thanks to our healthy and continual growth, we are in a position to uphold our real value strategy and keep our promise of high interest rates for our insured over the long term. In this way, the very positive performance in 2021 allowed us to pay an exceptional 8 per cent on the retirement assets. And even our current retirement pensioners received a one-time supplementary pension of CHF 1000. 

More on our investment strategy can be found here.